The collapse of one of the UK's largest PPP contractors show the need for better financial management from all parties

This week saw the second annual UAE Public Policy Forum taking place in Dubai on the theme of Public-Private Partnerships. The event included a presentation from the former UK Minister of State for Trade and Investment, Lord Francis Maude, on the UK's experience with PPPs.

Unfortunately on the very same day, one of the UK's largest public partners, Carillion, announced it was going into liquidation, putting at risk 43,000 jobs worldwide and leaving as many as 30,000 sub contracting small businesses owed money. Carillion's PPP contracts with the British government, which include construction, management and services in hospitals, schools prisons and transport and other public sectors, have been thrown into disarray.

The failure of Carillion highlights just how sensitive an issue PPP can become if things go wrong, and while the model has many benefits, governments need to be properly prepared before handing over functions to the private sector. Outsourcing services like cleaning hospitals might be an attractive proposition to government, but if the supplier fails, finding a replacement is not a simple task.

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Carillion is partly looking like a story of financial mismanagement, and any government entity that is entering into a PPP needs to be sure of the financial stability and probity of its partners.

At the same time however, Carillion suffered financial issues with government contracts, including some in Qatar, which were not its fault, and which illustrate that it is not just the private partner that needs to show financial maturity for PPP to work. It is a fairly common complaint among companies in the Gulf that government customers do not pay on time, and this sort of financial laxity can have a serious effect on suppliers and partners.

One issue with PPP is that it is often only the biggest companies that can afford to compete, yet many countries have a mandate to encourage small businesses, and to include more SMEs in their contracts and partnerships. In turn, many SMEs would like to participate more in government work, but they often cannot risk having too much of their business tied up with a late-paying government entity. Carillion proves that if even the biggest PPP partner can be brought down by poor financial practices among partners, that government entities need to also ensure that they are holding up their part of the PPP to make it succeed.